German labor market and fiscal reforms 1999–2008: Can they be blamed for intra-euro area imbalances?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables within a two-country monetary union DSGE model. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of thereafter observed imbalances in the Euro Area. We find that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German trade balance and the current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area.

Who benefits from using property taxes to finance a labor tax wedge reduction?

“…2 Budget-neutral labor tax wedge reductions, also termed fiscal devaluation in the literature, have been analyzed in a prominent paper by Farhi and Werning (2014), who find that lower labor income taxes financed by higher VAT can replicate a nominal devaluation and may be economically beneficial. In terms of improving economic performance, a similarly beneficial finding of a permanent shift from labor income to consumption taxation is supported by Boscà et al (2009Boscà et al ( , 2013, Gadatsch et al (2016b), Gomes et al (2016), Jacquinot et al (2018), Langot et al (2014), von Thadden (2009, 2013) and Stähler and Thomas (2012) in DSGE models calibrated to France, Germany, Portugal or Spain. Engler et al (2017) show that tax wedge reductions on the employers' side are more beneficial compared to reductions on the employees' side which, at least for the short run, is confirmed in an analysis by Burgert and Roeger (2014).…”

“…Still, aggregate labor market effects are comparable in both frameworks, while a non-Walrasian one seems more appropriate to depict European economies (see Maffezzoli, 2001, for a discussion). Furthermore, note that introducing a labor market participation decision in our framework would not alter the results qualitatively (as is discussed in, for example, Gadatsch et al, 2016b, who analyze the shift from labor to consumption taxation in Germany during the early 2000s).…”

Розвиток Інфраструктури Як Структурна Реформа В Україні: Інвестиційні Аспекти, Міжнародний Досвід Та Аудит

“…For some euro area countries, fiscal space is quite limited, so expansionary fiscal policy is not a realistic option for supporting structural reforms. In this context, Arce, Hurtado and Thomas (2016) argue that structural reforms in the "periphery" countries, fiscal expansion in the "core" countries and monetary stimulus for the euro area as a whole can reinforce each other, 53 unless fiscal spillovers are small, as suggested, for example, by Gadatsch et al (2016). Andrés et al (2017) discuss interactions between macroeconomic policy and structural reforms in the context of a two-country monetary union model.…”

“…However, such reinforcement may be weak e.g. if fiscal spillovers are small, as suggested, for example, by Gadatsch et al (2016).…”

German Wage Moderation and European Imbalances: Feeding the Global VAR with Theory

“…Gadatsch, Stähler, and Weigert () and Busl and Seymen () make use of policy simulations within a two‐country monetary union DSGE model to analyze the effect of German labor market reforms on its current account balance and that of other member states. Their findings are in line with ours as they find a very limited role for these reforms in driving current account imbalances.…”